Saving is the first step to begin a financial journey for a child.
Teach the difference between saving and investing in your child.
Growing the habit of investing is initially a parent’s job. When the children grow up, it passes on to them. The decisions one makes as adults depend mostly on how they make choices at an early age.
If you are among responsible parents, you can start teaching kids about money as early as 3-years-old. By learning this, children can grow up being more financially aware and prepared. Parents should have a goal to raise children as adults. By the time they are young, they may not have considerable money in hand, but they would have developed good habits to make it happen in the future.
Here are guidelines to grow the habit of investing for both parents and young people.
The ways parents should follow to grow the habit of investing in children
Money is a Limited Resource
The primary lesson that a child needs to learn is that money is a limited resource and it has opportunity costs. When children are led to believe that money is an unlimited resource, they usually grow reckless spending and borrowing habits.
Start the lesson with Saving
Saving is the first step to begin a financial journey for a child. The piggy bank is the first kind of a toy that teaches them to save. Gift your child a piggy bank. The habit of investing starts with the simple idea of saving from pocket money in the piggy bank.
However, kids need to learn four things – save, spend, donate, and invest. To make them understand easily, you can convert traditional piggy banks into one with four compartments. The four chambers will give them a pretty clear idea to divide their pocket money among these 4.
Next necessary step is an Investment
It would help if you pointed out the difference between saving and investing in your child. The first one is keeping money and the second one is making money work to become much more in amount. Speak in their language. Tell your kid to place two coins from the piggy to your bank for a week, and for that, you will give them one coin more in return. And this way of making more coins is called investment. It will be simple enough to understand what the term investment is.
Stories can do Better
Narrate your saving and investing plans and explain the benefits of your saving now and in the long run. Share your ideas of investing and involve them in your investing activities. Tell them how you will fulfill your dreams with your savings, and don’t forget to mention that your kids are part of those dreams.
Adopt the Individual Learning Style
Teach your lessons and explain about saving and investment in the way how your child learns best. The new generation takes an interest in visual learning rather than listening to a boring conversation. Employ different sources and methods to communicate, using pictures, videos, smartphone applications, and narration.
Teaching in line with Investment Concepts
Children should learn that they should not place all of their eggs in one basket. Why? You make them understand with a beautiful story of a bird’s nest with all the eggs inside. And what happened on a stormy night… Hey! You can make the story better than me! Your objective is to make them understand the basic concepts.
Giving is what you must not Forget
Warren Buffett, the legendary investor, believes deeply in giving, which is not an afterthought. When you give children cash gifts, you can teach them that before spending, they should put some of that amount in the bank and donate some of it.
The ways youths need to follow to grow the habit of investing
Realize Money as a Tool
Try to recognize money as a tool that can be used to create the life and lifestyle of your own choice through smart decisions regarding spending, savings, and investing. If you’re ready to build wealth, think money as a tool and guide that will make you earn.
The Power of Compound Interest
“Compound interest is the most powerful force in the universe,” says a well-known financial planner Jude Wilson of Wilson Group Financial. But, it’s vital to note that the power of compound interest comes with time, and you waste time if you don’t start investing when you’re young.
Learning to live on Less
If all the investments can be made automatically, it’s a lot easier to learn to live on less. And if saving and investing become a priority instead of an afterthought, it becomes easy to build real wealth. The bottom line is that if one gets into the habit of saving and investing automatically, there would be no more worry about money or retirement savings.
Ignore all your Joneses
The fear of missing out in mind and trying to keep up with friends and social equals mostly drive people at a young age, spending money that they have and racking up debt instead of having responsibilities like saving and investing for the future. Your friends, with their luxurious lifestyles, might seem they have it all, but the chances are that they don’t have ample savings for retirement.
Check on the Financial Health
If you’re drowning in debt and don’t have any control over your spending, investing at 20 cannot be the solution. Financial health is all about fundamental spending habits, debt-management, savings, and budgeting. The best thing you as a young person can do is to consider all aspects of your financial health. It will help you understand that the habit of investment is really worth it.
Ramp up your Savings as you Grow
As you grow, too many goals get added to your earlier ones. You may want to buy a home, have a new car, go on a world tour and also save for the future, all at a time. Therefore as your goals grow in number, and you get a pay raise every year, ramp-up your investments.
Growing the habit of investment is always beneficial. However, it becomes fruitful when you consult a financial planner to verify time to time that you are on the right track to meet your goals, and times are not at the waste.
So, why not start from today itself!
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
(About Author: Arindom is a professional writer, editor, blogger and a member of the International Association of Professional Writers and Editors, New York. A management postgraduate in finance with extensive industry exposure, he is associated with many reputed global online magazines and publications as a regular contributor. He loves to help his readers writing highly informative and well-researched investment-related content to make informed decisions.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of organization)